Office market: is the property party back on?

Craig Straw, director at Innes England’s Nottingham office takes a look at the performance of the East Midlands office market.

Much the same as the rest of the commercial property market, the office sector in the region is showing signs of recovery and the mood is one of cautious optimism.

We are starting to see the return of the long lease for good quality stock. More and more, ten-year terms are being secured for lets. This means much-needed stability for the market along with a fundamental shift in attitude from the years of recession.

Whilst there hasn’t been a material change in the availability of new Grade A stock within the East Midlands, good quality second-hand stock remains popular. We are beginning to see the reappearance of speculative refurbishment by landlords who are feeling more confident that the initial outlay will be repaid with a swift letting as the market takes a turn for the better – and landlords are being rewarded for their optimism.

However, there is still a significant amount of poor quality and fundamentally dated stock lingering in the office market, particularly within our city centres. More and more, though, these buildings are being converted – particularly into student accommodation – which adds to the vibrancy of the city centre. It may well be that, as the market continues to improve, we will see this broadened to other residential uses, which will undoubtedly benefit our city centres.

I think it is too early to say that the property party is in full swing – the industry is still smarting from a long and uncomfortable period of recession. However, there are tangible signs of a long-awaited recovery. The next stage of the cycle to be achieved will be the return of design and build activity. This requires rents to be in the region of £18-20 per sq ft to support the financial viability combined with a long-term lease commitment. It is encouraging to see that at least part of this formula is now in place.